Credit cards for people with no credit history are a bit of a conundrum. If you’re about to enter college – and get your first credit card – you can feel like the belle of the ball with the number of credit card offers that hit your mailbox.
If you’re an adult and have lived abroad for a time, or are fresh to the U.S. as an immigrant, or have been living off the grid in a yurt in Alaska for the past decade, getting a first-time credit card can prove to be more of a challenge. Here’s how to get back into the world of credit:
Student Credit Cards
Credit card companies like to get you while you’re young. That’s why students are an attractive and captive market for credit card companies – their future profits depend on roping you in. If you don’t have income, however, you’ll need a cosigner, likely your parents. And here you’ll learn the first lesson in credit card use and credit scores: Always pay your bill on time.
To look for the best credit card as a student, check out our tool here.
Unsecured Credit Cards
If you’re an adult applying for a first-time credit card, your options will depend on your income and the length of your credit history. If you have no credit history – no car loan to your name and no student loans – your choices will be fewer, but still good. Click here for a list of unsecured credit cards that are good for building (as opposed to rebuilding) your credit history.
In-Store Credit Cards
Store credit cards are a good news/bad news deal. The good news: They have much lower credit rating requirements, which makes them great credit cards for people with no credit history. The bad news: They have lower credit limits, higher interest rates and few perks. Grabbing an in-store credit card may be a good gambit if you’re trying to build a credit history, but only if you pay bills on time, preferably the entire balance at once.
Why? Besides payment history, the credit utilization ratio – the amount of credit you’re using compared to your total credit limit – is the biggest determinant of your credit score. Some store credit lines can be as low as $150. If you’re using $75, you have a credit utilization score of 50%. Credit scores like to see that ratio below 30%.
Secured Credit Cards
If you have the money to back them up, secured credit cards are the easiest card to get with no credit history. The amount you are able to borrow is equal to the amount you deposit, which “secures” your credit borrowing. You can find some of the best secured credit card deals here.
The amount you deposit is refundable when you close the account, but beware: Your credit history score will decline if you completely close out the account. It’s best to keep a minimum deposit and the card open if you are seeking to build or rebuild your credit history.
Image via iStock.